Which statement defines Return on Assets?

Which statement defines Return on Assets?

• A. ROA indicates how profitable a company is relative to its total assets.
• B. ROA equals price-earnings ratio.
• C. ROA equals net income divided by equity.
• D. ROA equals gross margin.

Answer: (A)

Return on assets measures how efficiently a company uses its assets to generate profit. It’s calculated as net income divided by total assets (often using average assets), showing how many dollars of net income are produced per dollar of assets. This is why the statement that ROA indicates profitability relative to total assets is the best description. The other ideas describe different concepts: a price-earnings ratio is about market valuation, net income divided by equity is return on equity (not ROA), and gross margin is about profitability from production relative to revenue, not overall asset efficiency.

Return on assets measures how efficiently a company uses its assets to generate profit. It’s calculated as net income divided by total assets (often using average assets), showing how many dollars of net income are produced per dollar of assets. This is why the statement that ROA indicates profitability relative to total assets is the best description.

The other ideas describe different concepts: a price-earnings ratio is about market valuation, net income divided by equity is return on equity (not ROA), and gross margin is about profitability from production relative to revenue, not overall asset efficiency.